Posts pertinent to the entrepreneurial economy. From 2016 onward, focused more on private securities offering exemptions and topics related to startup and emerging company financing.

31 posts categorized "December 2011"

By http://profile.typepad.com/1237764140s22740 //
December 31, 2011
in Social Media

I haven't waited for the New Year to go ahead and start culling blogging and social media platforms that I signed up for, played with, but haven't stuck with.

I'm looking to simplify, but I want to remind myself that I'm not necessarily looking to centralize.

This blog is my home. I like it over Posterous, Tumblr, Facebook and Google+ because it's under my control.

But comments, links, asides, pictures, checkins, the daily possibilities and serendipitous moments that social media enables - which feed into and from the blog and the building of a community - those are vital, too. Ideally, this kind of exchange would happen in platform-agnostic media.

Because most services are jealous of their own prerogatives as platforms, simplifying means closing off or narrowing certain avenues for reciprocation. Some people I want in my community prefer to frequent the services I want to drop.

More than anything, we need a media service or utility that jettisons the advertising model. Social media was made to disintermediate advertising - it is its destiny - but the most popular services have gotten popular in spite of their lack of imagination and ambition on this point.

"The business of training and racing thoroughbred racehorses is a high-risk venture and most racehorse ownership is not profitable. In particular, studies in the U.S. market have concluded that financial returns from owning racehorses are negative in the aggregate."

"[W]e estimate that approximately 27% of the offering proceeds will be used to pay expenses related to the offering and ongoing legal, accounting and other administrative expenses, most of which would not ordinarily accompany an investment in thoroughbred racehorses."

"Over the past twenty years, live attendance at horse racetracks in the U.S. and Canada has declined substantially. The total number of races declined from 81,279 in 1990 to 52,771 in 2010. Pari-mutuel wagering on thoroughbred horseracing has declined from a peak of $15.7 billion in 2003 to $11.9 billion in 2010. U.S. and Canadian purses, which represent the amount of available winnings in United States and Canadian thoroughbred horse races (including monies not won and returned to state breeder and other funds), declined by about 4.8% over the same period. A recent study commissioned by The Jockey Club indicated that thoroughbred horseracing’s core fan base is shrinking, that fans wager less on thoroughbred horseracing than they did a year ago and that wagers, or “handle”, per race has declined in most racing categories since 2000. The number of race days has also declined significantly. Since 1999, more than 25% of races, excluding major racing events such as the Kentucky Derby, the Belmont Stakes, the Preakness Stakes and the Breeder’s Cup and other racing events held on the same day, have been inadequately funded, meaning that the live handle contribution from all sources to the tracks and purse account was less than the purse paid out to horsemen."

"Studies have shown that the likelihood of realizing sufficient proceeds from the racing and ultimate sale of a thoroughbred racehorse to cover its purchase price and maintenance costs during the period of ownership increases with price up to $100,000 and is lower for horses with purchase prices above $100,000 than for lower priced horses. A possible explanation for the latter relationship is that horses whose ancestry and athleticism suggest that they might, after training, qualify for higher level stakes races carry a premium based on prestige or other intangible factors rather than the likely economic benefits of ownership. We have acquired 12 horses that were purchased by Alpen House for $50,000 or less, 3 horses that were purchased by Alpen House for $100,000 or more (including one horse that was purchased for $210,000) and 5 horses that were purchased by Alpen House for more than $50,000 but less than $100,000. We purchased horses above $100,000 because we believe that prospective investors will be attracted by the potential opportunity of the company to race one or more of its horses in higher level stakes races, but there is no assurance that any of our horses will in fact qualify for such races or that any of our horses that do qualify for such races will win any purses."

"Our horses were acquired by Alpen House principally at auctions during 2011. Prior to the racing of any of our horses, each horse must be properly trained to compete. We anticipate that the earliest any of our horses will be entered into a race is approximately August 2012. No assurance can be given that any of our horses will be entered into a race by such date. Thoroughbreds typically require significant recovery periods between races and overall, we estimate that prior to our liquidation, our horses that we own for our entire operating period will have been entered into an average of approximately six races per horse, limiting the potential revenues that can be generated from race winnings during our anticipated operating period. No assurance can be given that any of our horses will be entered into any particular number of races."

"Racetrack conditions, such as a grass or a muddy racetrack (as opposed to a dirt racetrack or all-weather track), may further limit our ability to race a horse because we may decline a racing opportunity when we believe a horse underperforms on the surface on which the race is being run or if we believe conditions are such as to expose the horse to undue risk of injury."

"Certain of our horses have been injured or may become injured prior to the completion of the offering and there can be no assurance that the training or racing of one or more of our horses will not be so impaired. In particular, on September 24, 2011, one of our horses, the filly by Macho Uno out of Dashes N Dots (identified as Horse 2 in 'Business—Horse Acquisitions—Our Thoroughbred Racehorses' below), injured its foot and underwent surgery related to this injury but has now commenced the training process."

By http://profile.typepad.com/1237764140s22740 //
December 29, 2011
in Crowdfunding

If you missed it over the holiday weekend, be sure to read Joe Wallin's guest post on an alternative to crowdfunding here. Joe challenges crowdfunding proponents to ask Congress to democratize startup financing in a more fundamental way. I don't agree with Joe's approach, but he's a leading thinker on securities law reform and I think crowdfunding advocates would be smart to confront and assess his view.

Yesterday, Adam Gering left a comment on Joe's post about the 500 shareholder threshold, and that made me look again at the Merkley crowdfunding bill.

Quick recap: there are at least three different crowdfunding bills in the current Congress: one that has passed the House, the McHenry bill, H.R. 2930; one introduced by Senator Scott Brown, S. 1791; and one introduced by Senator Jeff Merkley, S. 1970.

Adam's comment raises a point I didn't cover in that "third bill" post, and that has to do with whether or not the "crowdfunders," those shareholders who are shareholders by virtue of owning shares issued under the crowdfunding exemption, count toward the 500 shareholder limit (or 1,000, or greater, shareholder limit, assuming legislative efforts backed by Second Market succeed).

As Adam puts it,

"If they just increase the number to 1000 shareholders (as has been proposed), I think a company would still severely regret in the future having sacrificed half their shareholder limit for only $500K of seed funding."

The McHenry and Brown bills cover this, by providing that "holders of securities issued pursuant to" the crowdfunding exemption shall not count as shareholders of record for purposes of the numerical cap. (See Section 3 of each bill.)

But the Merkley bill lays down no such solution. Instead, it kicks the subject over to the SEC, stating that "The Commission may, "as appropriate," exempt from" the shareholder count "securities acquired pursuant to an offering made under" the crowdfunding exemption.

Merkley's language is discretionary: the SEC may decide, as appropriate, to issue rules to exempt crowdfunders from the shareholder cap. If there's no rulemaking on this point, then crowdfunders count against the limit, and Adam's objection applies. Even if there is rulemaking on this point and it ends up at the same place the McHenry and Brown bills start at, Merkley's crowdfunding exemption will have entailed more delay, more uncertainty, and less utility for at least a year.

By http://profile.typepad.com/1237764140s22740 //
December 28, 2011
in Design, Seattle

The building across University Street from my office's building is called Park Place.

It's not an ugly building but until recently it was invisible, perhaps because it lacked approaches designed to actually take you there. University Street functions as an on-ramp to I-5; the sidewalks funnel pedestrians away from the highway and west, down the hill in the direction of the waterfront, or else north, past my building, to the retail area.

But some clever architect(s) or designer(s) have given the building, and the whole block, character, through a redesign of what had been Park Place's throwaway entry area.

One of these pictures is of a workman finishing the installation of metal type to make sure you're struck with the name of the place (not sure I could put a name to the building before). Above the letters you can see a screen mesh, which somehow, by covering the space between the columns, accentuates the height of the columns. From inside, the mesh gives volume to the space, making it atrium-like, but still transitional - between outdoors and inside.

In the gray, drizzly winter afternoons of Seattle, it's hard to get a picture that captures how well the re-design draws the eye through a play with materials and texture. But in the early evening, the space show off for pictures. Chandeliers glow from the box and warm the whole street. Really nice work. They may need to put a chair or two in there.

Political action committees (PACs) for two cable companies, Comcast and Time-Warner, together with a PAC for the cable industry trade association headed by a former Chairman of the FCC, the NCTA, have contributed an aggregate $134,500 so far to the 2012 reelection campaigns of the sponsor and the 31 co-sponsors of SOPA.

In fact, of the 32 members of the House of Representatives signing on to sponsor SOPA, only two did not receive any current election cycle contribution from any of the Comcast, Time-Warner, or NCTA PACs. (The two are Representative Mark Amodei and Representative Peter King.) Most of the SOPA sponsors received 2012 campaign contributions from at least two of the three PACs. Seven sponsors received current election cycle contributions from all three PACs.

Not surprising: SOPA originating sponsor Representative Lamar Smith, the Chairman of the House Judiciary Committee, received contributions from all three PACs. Somewhat surprising: Representative Debbie Wasserman Schultz received more from these three PACs than Smith ($17,500 for Schultz, to Smith's $15,000).

I then compared the top several industry PACs (listed in order of contributions) from the OpenSecrets.org site against a pdf on the House Judiciary Committee site listing private supporters of SOPA.

Having identified the top PACs on OpenSecrets.org that were also listed by the Judiciary Committee as SOPA supporters, I drilled into the specific, legislator by legislator, contributions by those PACs as listed on other pages at OpenSecrets.org. (The relevant pages are identified in the Google Docs spreadsheet.)

A PAC for the National Association of Broadcasters is listed as the second biggest contributer among the TV/Movies/Music PACs for the 2010 election cycle, but I did not include their contributions in the written analysis above because the National Association of Broadcasters does not show up on the Judiciary Committee pdf list of supporters of SOPA. (However, the spreadsheet has a column showing this PAC's contributions to the sponsors, which seems to match the overall pattern of the other three PACs.)

Stopping at three is just a reflection of how much time I had to flip back and forth from the OpenSecrets.org data on each PAC, and the spreadsheet listing SOPA's sponsors. It would be ideal, of course, to ferret out the financial contributions of each of the supporters listed on the Judiciary Committee pdf, or otherwise tease out patterns or aggregate contributions or surface "stealth" supporters of SOPA through use of the OpenSecrets.org (or other public) campaign contribution databases.

I don't begin to understand how contributions to entities set up to shadow but not "officially" speak for candidates might be traced, if at all.

OpenSecrets.org said the data I was looking at was based on Federal Election Commission data released on December 5, 2011. So it may not reflect additional payments being made recently to the bill's sponsors.

If you'd like to help me continue to build out the spreadsheet and/or keep it current, please say so in the comments and I'll send you a Google Docs invite to edit it.

Flickr Photo, "Auctioning off furniture at the old Canterbury Public Library building after it closed," by Christchurch City Libraries.

"I think the mature thing to do, as cynical as this might sound, is to realize that the government is obscenely out of touch with its constituency, and stop going to them for help. Instead, influence the influencers.

"At the end of the day, all companies have is customers. If the customers stop utilizing their services, the companies are forced to stop pushing their anti-consumer agendas into legislation. Part of this is utilizing the Internet, as it now is, to circumvent the old ways of doing things.

"Essentially, while it is free, startups should be focusing on helping consumers circumvent traditional industries.

"We all hate banks as they are. Let's reinvent them.

"We all hate telecoms. Let's try to create startups that can compete with them.

"We all hate loan institutions. Let's disrupt the loan structure, allow people to privately invest in one another on a micro scale. Hell, it's already being done for 3rd world nations.

"We have a real opportunity to change things and make them better. Get out from under the institutionalized world we grew up in. Why not?"

I really like the comment and I love the spirit.

But I also think the "why not" is that the influencers will continue to pay the Congress to undermine innovation and stack the deck against the disrupters.

The #Occupiers have tried to make it okay to say at home what we until recently thought was only okay to say about governments in other parts of the world: that no government is legitimate unless it is democratic. It shouldn't be that radical an idea, but it probably will take some getting used to, that we have the right to insist that the government serve the common good and not influencers.